Agrii and Origin Fertiliser parent company Origin Enterprises reports that its UK and Ireland business volumes have fallen by 25.6% in the first half of its financial year, due to the wet autumn which has reduced winter crop plantings to the lowest level for 30 years.
While the seasonal nature of the business means that the majority of its revenues and profits are traditionally generated in the second half, a swing to more spring cropping and fallowing this year has led to the group issuing a full year profit warning.
The Dublin-based Origin Enterprises group made an operating loss of €1.65 million on revenues of €604.91m in the six months to January 31st 2020, compared to a positive €10.88m and €701.55m in H1 2019. The figures include associate and joint venture receipts.
The shortfall in domestic business was partially offset by a better performance from the group’s diversified interests in central eastern Europe, now integrated under the Agrii brand, and Latin America.
The Agri-Services UK & Ireland division, the Group’s largest, returned an operating loss of €9.1m on sales of €337.4m, compared to a positive €2.1m and €433.9m a year earlier. The contribution from associate and joint ventures fell 50% to €0.9m.
The €11.4m decrease in operating profit reflects a 25.6% reduction in business volumes due to lower autumn and winter crop plantings as a result of “intense and prolonged rainfall” throughout the period.
“Following a poor start to the autumn and winter crop planting season in the first quarter, minimal progress was achieved in the second quarter,” notes the company. “Farmers and growers were unable to complete their planned sowings as large areas of cropping land remained waterlogged, thereby precluding any meaningful field work. This has resulted in the lowest level of autumn/winter oilseed and cereal plantings in 30 years. Due to the sustained nature of the adverse weather conditions, it is likely that a proportion of hectares will not transfer to spring cropping and remain unplanted in 2020.”
The company estimates total UK autumn and winter plantings for principal crops at 1.1 million hectares, a 40.4% fall on the 1.7mha sown at the same stage of 2019. Within the total, it predicts a 43% drop in the winter wheat area to 1.0mha (1.8mha in 2019). It anticipates that some 55% of the winter cropping shortfall will transfer to spring plantings, with the balance to be fallowed.
This points to a total autumn, winter and spring crop area of 4mha for harvest 2020, or 10.7% lower than the previous year.
Fertiliser sales demand was also lower than expected in the period, following the poor weather and uncertainty over pricing. “This has resulted in farmers adopting a cautious approach to procurement ahead of the main application period in the second half of the financial year,” the company says. “Although activity levels on-farm were more favourable in January 2020, the reduced cropping profile in the UK is likely to result in full year demand behind that achieved in the prior year.”
The Group’s animal feed ingredients business – it is a major feed materials importer into Ireland – saw volumes handled fall year-on-year, but against a very strong prior period when forage was short after the hot, dry conditions in summer 2018. Therefore, performance was satisfactory, as was that of the John Thompson & Sons feed manufacturing business in Belfast, in which Origin is a 50% shareholder.
Origin’s Digital Agricultural Services segment, grouped under the Rhiza brand, says its Contour service now covers 1.2mha in the UK, Ireland and continental Europe. “In a challenging season, the ability to use data to make decisions on cropping, measure establishment and produce more comprehensive advice, input prescriptions and climate sensitive practices to sustainably exploit the available crop potential is ever more critical.”
“It has been a challenging first six months for the Group,” notes Origin chief executive Tom O’Mahony. “The 40% year-on-year reduction in the level of autumn and winter crop plantings significantly exceeds the 25% reduction estimated at the time of our Q1 trading update in November 2019 and has resulted in lower than expected underlying profitability and cash generation in our largest division, Ireland and the UK.
“Continental Europe and Latin America recorded good performances in the first half of the year, delivering an underlying increase in operating profits. Especially pleasing was the reduction in working capital delivered by our teams in Continental Europe.
“Against these particularly challenging conditions, we will focus on optimising operational performance while pausing M&A activity. Notwithstanding the weather challenges currently being experienced in Ireland and the UK, we remain confident in the delivery of our 2023 growth ambition.”